The Franchise Memorandum

The Federal Circuit Court of Appeals reversed a preliminary injunction granted as to franchisor Urban Air’s patent and trade dress infringement claims against Kangaroo, LLC. UATP IP, LLC v. Kangaroo, LLC, 2024 WL 658205 (Fed. Cir. Feb. 16, 2024). Urban Air is the franchisor of indoor play facilities that include trampolines, ziplines, rope courses, and other attractions. The owners of Kangaroo also owned Air Entertainment Group, LLC (AEG), a former franchisee of Urban Air which operated out of the same location as Kangaroo. Due to AEG’s alleged defaults under their franchise agreement, Urban Air terminated the franchise agreement and AEG’s license to use Urban Air’s patented play equipment, copyrighted materials, and trade dress. Post-termination, the owners of AEG, operating as Kangaroo, allegedly continued to use the same equipment and certain elements of Urban Air’s trade dress in their competing business. Urban Air moved for a preliminary injunction arguing both patent and trade dress infringement and a federal court in Texas granted the injunction. Kangaroo filed an interlocutory appeal to the Federal Circuit.

The Federal Circuit reversed the district court and vacated the preliminary injunction. It determined that Urban Air failed to present a sufficient patent infringement claim. Neither Urban Air, nor the district court, compared Kangaroo’s allegedly infringing equipment to the patent claims and, therefore, Urban Air failed to demonstrate a likelihood of success on the merits. Instead, the court reasoned, the district court and Urban Air mistakenly assumed that Kangaroo’s equipment infringed Urban Air’s patent because it was previously used in the operation of AEG’s franchised business. As to the trade dress claim, the court concluded that there were insufficient facts in the record to support the injunction. Although Urban Air briefed all the necessary elements of its trade dress infringement claim, the Federal Circuit found that the district court’s analysis was conclusory and failed to address the likelihood of confusion factors, and the non-functionality or distinctiveness of Urban Air’s alleged trade dress. Additionally, the appellate court concluded the district’s court findings of irreparable harm for both claims deficient because it failed to make any findings regarding irreparable harm as to the patent claim, failed to address Urban Air’s ten-month delay in moving for a preliminary injunction, and improperly applied the statutory presumption of irreparable harm under 15 U.S.C. § 1116(a) as to the trade dress claim. Lastly, the Federal Circuit determined that the district court failed to make sufficient findings on the balance of the equities or the public interest for both claims. Accordingly, the preliminary injunction as to the patent claim was reversed, and the trade dress claim was vacated and remanded.